Martin Taylor is right to sell BZW and recalls George Soros turning red over lunchby John Plender / November 20, 1997 / Leave a comment
The argument between the advocates of shareholder value and stakeholder capitalism often sounds like the dispute in Gulliver’s Travels over the best end of the egg from which to extract the yoke. The short-termist Anglo- Saxons-call them little-enders-under-invest but use capital very efficiently. The stakeholder economies-or big-enders-invest heavily but less productively. Yet growth rates in the two sets of economies have been converging.
The risk of generalisation becomes apparent when you look at Barclays’ decision to spin off BZW, its investment banking arm. The sudden reversal in Barclays’ view of what constitutes a core business looks typically Anglo-Saxon-hardly the way to encourage the remaining employees in a “people” business to commit themselves to the company. Yes, the target rates of return set for the Barclays’ group by chief executive Martin Taylor look high, as Will Hutton of the Observer has remarked. And while Taylor has shown himself deft in the arts of cutting and spinning which he learned at the textile giant Courtaulds, one wonders whether he is as adept at generating revenue-or indeed, at spotting good investments other than Barclays’ own shares.
Yet Taylor is surely right to submit to capital market discipline and pull out. The investment banking business is a madhouse nowadays. It is being wrecked by people with more capital than sense. The profligate use of capital is not, incidentally, confined to the stakeholding Swiss, Dutch and Germans who are buying UK investment banks and bidding up pay on Wall Street. The US financial conglomerate Travelers, under the guiding-or perhaps one should say misguiding-hand of Sanford Weill, is buying Salomon Brothers for $9 billion in paper.
Weill’s deal is unlikely to work, because big investment banks are mainly low-trust outfits full of greedy people out to appropriate more and more of the value from high-risk trading activity at the expense of shareholders. If senior managers do not give in to their demands, these individualists quickly spin themselves off. This is the recent history of Salomon, where the efforts of savvy investor Warren Buffet and British-born boss Deryck Maughan have failed to impose a sane pay structure on hostile traders. Barclays’ is well out of such lunacy.
the argument over the different models of capitalism remains heated in continental Europe. Yet the terms of the debate are confusing. Last month I heard Sergio Marchionne, chief executive of the Swiss industrial group Alusuisse-Lonza, declare that stakeholder capitalism had been killed by the emergence of global markets. It turned out that what he really meant was that stakeholder economies will have to improve their management accountability-a familiar goal in the English-speaking world too. He went on to say that empowering the workforce should not be sneered at. “For consistent, competitive success,” he added, “a focus on shareholder value is not sufficient. That can only be achieved by focusing on wider stakeholder needs.” So stakeholding is alive and well, but in a more shareholder-friendly form than in the old German and Japanese models.
liberalisation is still much less of a slash-and-burn affair across the channel. Hence an audible gasp at a recent conference on privatisation in Amsterdam, where I pointed out that Britain’s National Power and Powergen respectively had shed 56 per cent and 48 per cent of their employees between 1990 and 1993.
The panel discussion that followed was in Dutch, of which I speak not a word. But the country is starting to liberalise its electricity industry; and even I could tell that the Dutch economics minister spent much of the session ducking and weaving over job losses.
It struck me that the vision of Europe outlined by Tony Blair at the Labour party conference, with its emphasis on free trade and flexible labour markets, will be less a beacon of light for these people than a blow torch.
for malaysia’s Mahathir Mohamad the nearest thing to a blow torch is George Soros. It may console Mahathir to know that I have personally witnessed the great financial wizard wilt. It was in the mid-1970s, when I wrote for The Economist. A colleague, David Gordon, now head of the Royal Academy, had invited Soros to lunch and booked us into an Indian restaurant. Soros explained that Indian food made him turn red and pour with sweat. Gordon told a bemused Soros not to be a wimp. We strode off to the Gaylord in Albemarle Street.
Sure enough Soros turned beetroot red and sweated miserably. Why did he put up with such treatment? Almost certainly because he had made a killing following an article by Gordon on the cheapness of Hollywood stocks and was hoping for another tip. No such luck.
I doubt whether the great man could be coaxed into an Indian restaurant today. Nor a Malaysian one, come to that. The moral for Mahathir: you can be rude to Soros only when he is the demandeur.